WPG - Should Mall REITs Fear the Forever 21 Bankruptcy?
Last Sunday, Forever 21 filed for bankruptcy, following months of rumors. The ubiquitous fast-fashion retailer plans to close up to 178 stores in the U.S., although some of those locations may stay open if landlords offer sufficient rent concessions.
Forever 21's bankruptcy adds to the pressure that mall-focused REITs have been facing from other retail bankruptcies and downsizing. What's unique about this case is that Forever 21 occupies a lot of square footage and is a meaningful rent-payer. By contrast, the department stores that have closed in recent years often paid very little rent (or owned their stores outright), while the in-line tenants that have filed for bankruptcy took up far less space than Forever 21.
The Forever 21 bankruptcy filing will impact the full spectrum of mall REITs, ranging from Taubman Centers (NYSE: TCO) and Macerich (NYSE: MAC) at the high end to CBL & Associates (NYSE: CBL) and Washington Prime Group (NYSE: WPG) at the low end, as well as Pennsylvania Real Estate Investment Trust (NYSE: PEI) in the middle. However, three of these REITs are likely to incur the most damage from Forever 21 closing stores and renegotiating rents.